There is no doubt about the key role of savings and, in particular, that pertaining to the private sector. It can be channelled via state financing, investment on a national scale, or via economic agents beyond national frontiers. In fact, the excess of savings in areas like the EMU is showcased in countries like the US, where the savings deficit is covered by financing coming from abroad.
For example, excess savings is Germany’s big problem. Despite its growth, it still has an investment and consumption deficit. German recourses are channelled to the rest of the world and the Germans have become one of the big global creditors. Germany’s current account surplus accumulated over 12 months stood at $225.190 billion in August, namely, nearly 7% of GDP. The excesses are even larger in Holland, although the worrying thing is that this trend has generalised itself in the Eurozone as whole. The region’s current account surplus reached $338.5 billion in August (accumulated over 12 months) and accounted for 3.1% of GDP. This was a fairly measured decline with respect to the same month in 2016, when it stood at $358.1 billion or 3.3% of GDP.
On the other hand, the recurrent US current account deficit is a well-known fact. At the end of Q2’17, the 12-months accumulated figure stood at $460.9 billion, -2.4% of GDP. This is far off the level of -4% which, for example, is considered in the EU as being an excessive external imbalance. Whatsmore, the world’s leading economy has an extra advantage with regard to other countries, namely that its assets are considered as a safe haven and the US dollar is the major reserve currency.
But there is another reality which the US cannot escape.
In the last few months, we have witnessed a worrying downward revision to US savings rates, in addition to the clear declining trend in savings. They stood at 3.1% of households’ available funds in September compared with minimum levels of 1.9% registered in 2005.
As far as gross public savings are concerned, the figures have improved largely because we have gone from negative values which exceeded a billion dollars in 2009 and 2010, and even in Q2’11, down to -$301.8 billion in Q2’17. The question is that this improvement needs to be looked at in relation to what has happened in the sphere of private savings. In the US, the big protagonists of private savings have always been companies and, in fact, in Q2’17, the figures were striking. They totalled $3.133 billion vs $545,6 million of personal savings. This gap, together with the improved health of corporate savings, is not proving sufficient enough to avoid the decline in the afore-mentioned private savings’ area as a whole.
This is a situation which will get worse in Q3’17, given the already known deterioration in household savings. So gross private savings will be far off the maximum levels reached mid-2015 in absolute terms.
These old problems in the US will have significant implications in the long-term as far as wealth is concerned. But before that, another weakness will appear in the shape of a reduction in the “cushion” of savings for precautionary reasons. The full-employment situation in the US economy is interacting with the expectations of stimuli coming from the new government, as well as with the prolonged expansionary phase initiated mid-2009, giving rise to very strong confidence figures. As a matter of fact, the US Conference Board is at levels not seen since end-2000.
In light of the above scenario, the uncertainty perceived about income and futures needs has declined to a large extent, causing savings for precautionary reasons to retreat and this important “buffer” is eroded. The problem is that this important “buffer” must be underpinned in the expansionary phases in order to be able to safeguard consumption in the difficult times. However, this is not happening and implies that households’ spending will suffer, if there is any relevant upset in the future. In short, if households don’t dedicate part of the resources freed up by the tax reform in the US to savings, we will be facing some very bad news.